During these uncertain times, it’s normal to feel nervous about your investments. However, it’s crucial during a downturn that you consider your long-term goals and make well-informed decisions. When considering how to invest during COVID-19, we suggest you follow the steps outlined below:
Avoid the noise
We have experienced many financial catastrophes over the last several decades, including the technology bubble crash in the early noughties, the Global Financial Crisis (GFC) and now Coronavirus.
From 20 February to now (23 November), we have seen the S&P 500 index fall off a cliff only to recover and be up 5.5%, this compares with the ASX200 index in the negative by 8.6% for the same period.
Despite the Australian equity market lagging behind the USA equity market, both have recovered strongly and more rapidly than following any other financial catastrophes in history. This is due to the unprecedent financial stimulus provided by governments and central banks around the world, in response to the global pandemic.
“It’s not about timing the market, it’s about time in the market”. Time in the market strategy proves time and patience in the market is better than a quick buy or sale. Staying the course is important for any investment, and if you are investing new monies, be cautious and adopt a conservative investment approach such as dollar cost averaging – regular investments over a period of time as opposed to a one-off transaction.
Know your strategy
You should have a plan to achieve your goals and objectives which should include knowing the timeframe, the anticipated investment returns and how much risk you are willing to take.
Knowing how much risk you are willing to accept is important when deciding how to allocate your investments. Understanding the difference between market volatility and market risk is important. Volatility is how rapid the price of an investment can change, while risk is the probability that an investment will result in a permanent capital loss.
Investment assets are typically categorised into defensive and growth assets. Defensive assets include cash, fixed interest and bonds, these assets aim to provide income and have low volatility. Growth assets include shares, property and infrastructure and alternative investments such as private equity or long/short strategies. These assets can be very volatile in nature while providing a combination of income and/or growth opportunities.
The combination of these investment assets aims to provide diversification of your investment portfolio. The right combination depends on each individual investor profile and attitude to risk, as well as your specific goals and objectives.
Review your position
Unexpected events can impact your financial goals.
The impact of COVID-19 has no doubt brought investment portfolios and financial decisions to front of mind for many people. The way your portfolio is invested should be reviewed frequently, at least annually, to ensure your investment is on track to meeting your goals and objectives
You may have sufficient funds to meet your retirement needs and can reduce some of the risk within your portfolio, or you may need to take more risk given negative impact to your investment. It could also be to ensure your asset allocation remains appropriate or whether a more tactical shift is required, such as reducing financial sector exposure or increasing your weighting towards healthcare or IT.
Whatever the situation or market conditions, engaging the right professional advisor is essential to ensure your mix of investments is on track to achieving your individual goals and objectives, and ultimately growing your wealth. To find out how William Buck can help you achieve your financial goals, please contact your local William Buck advisor today.